Akorn Provides Financial Guidance for 2013

Thu Jan 17, 2013 2:30pm EST

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-Expects Record Revenue of $325 to $335 million-

-Reaffirms the previously issued guidance for 2012-
LAKE FOREST, Ill.--(Business Wire)--
Akorn, Inc. (NASDAQ: AKRX), a niche pharmaceutical company, today provided full
year 2013 financial guidance. The Company`s guidance excludes the impact from
any products for which the Company has not yet received FDA approval. The
Company will provide a more detailed update during its year-end 2012 conference
call. 

2013 Financial Guidance

   Total revenues                                      $325 - 335      million  
   Total gross margin percentage                       54 - 56         %        
   SG&A expenses                                       $51 - 54        million  
   R&D expenses                                        $22 - 26        million  
   Intangible asset amortization expense               $7              million  
   Income tax rate                                     ~ 37            %        
   GAAP net income                                     $53 - 57        million  
   GAAP net income per diluted share                   $0.46 - 0.50             
   Adjusted net income 1                               $65 - 69        million  
   Adjusted net income per diluted share 1             $0.57 - 0.61             
   Capital expenditures                                ~ $25           million  
                                                                                


   1    See Non-GAAP Financial Measures below for the reconciliation of Adjusted net income and Adjusted net income per diluted share to GAAP net income and GAAP net income per diluted share.  
                                                                                                                                                                                                 


Raj Rai, chief executive officer, commented, "We had a fantastic 2012 as a
result of great execution on many fronts by the entire organization and are
reaffirming our earlier issued guidance. We are excited about the long term
growth prospects of our company given the growing product pipeline and the
incremental manufacturing capacities achieved through our investments in our
plants in the US as well the acquisition of the manufacturing assets in India.
Our focus in 2013 is on accelerating our pipeline development through further
investments in R&D and on preparing our Indian location for US FDA approval." 

Frequently Asked Questions

Q: When will Q4 2012 results be released?

A: We are reaffirming our 2012 guidance, and will discuss the actual results at
our year-end conference call on February 26, 2013. 

Q: What are the growth drivers for 2013?

A: Akorn expects growth primarily from the recently launched products:
Latanoprost Ophthalmic Solution, Progesterone Capsules, Pantoprazole Injection
and Tetanus-diphtheria Vaccine. 

Q: Will Akorn be able to maintain the expected 2012 gross margins of
approximately 58% in 2013?

A: Overall gross margins for 2013 are expected to be in the range of 54-56% as a
result of growth from lower margin new products that are either partnered with
shared economics, in-licensed or are contract manufactured for Akorn. 

Q: Are there any margin improvement opportunities in the future?

A: Yes. The vast majority of Akorn`s active pipeline will be manufactured by
Akorn with no partnering or shared economics and as a result are expected to
have significantly higher margins than the products contributing to growth in
2013. Additionally, we expect improvement in the margins on our more competitive
products once we achieve US FDA approval of our Indian manufacturing site. 

Q: Why is Akorn projecting a substantial increase in R&D costs?

A: There are three primary factors contributing to the increased costs: 1) the
Generic Drug User Fee Act ("GDUFA") fees associated with the projected 25
abbreviated new drug application ("ANDA") filings for 2013; 2) the cost of
bio-equivalence ("BE") studies associated with high-value products; and 3) the
increased internal R&D costs due to the build out and staffing of a new, larger
R&D facility designed to accommodate our plans to complete 35-40 ANDA filings
per year and expand into the development of specialty formulations such as
carbapenems, hormones and oncolytics. 

Q: Can you provide some specific guidance on expected new product
approvals/launches?

A: The following table shows, by segment and current product status, the number
and total IMS market size of products/ANDAs expected to launch each year.

                                                                                                                             
                                                                      IMS Market Size of Expected Launch Products            
                                 Expected # of Products*              (in millions)**                                        
               Current                                                                                                       
 Segment       Product Status    2013          2014          2015     2013                  2014                  2015       
 Ophthalmic    Brand             0             2             2        $0                    $235                  $130       
               Generic           3             7             1        $120                  $115                  $0         
 Injectable    Brand             1             5             5        $70                   $520                  $280       
               Generic           2             1             2        $55                   $40                   $15        
 Other         Brand             0             2             0        $0                    $415                  $0         
               Generic           1             3             2        $5                    $345                  $695       
 Total                           7             20            12       $250                  $1,670                $1,120     


 *We have generally used a standard 30 months from filing date to determine launch timing of our pipeline products. Based on the guidance provided by the FDA, we should not expect GDUFA fees to yield a reduction in FDA review time until after 2015. Also note that we have excluded from our analysis products which are not yet filed, as well as filed products where the product patents extend beyond this forecast horizon.  
                                                                                                                                                                                                                                                                                                                                                                                                                                       
 **The IMS market size is based on the trailing 12 months ended September 30, 2012, excluding any trade and customary allowances and discounts. The IMS market size is not a forecast of our future sales of the applicable products.                                                                                                                                                                                                  
                                                                                                                                                                                                                                                                                                                                                                                                                                       


Q: Why are capital expenditures increasing over the level projected for 2012?

A: The expansion projects for our India facilities are expected to cost in the
range of $25-30 million over two years, of which approximately $15 million is
expected for 2013. These investments include the build out of the oncology
facility as well as expansion of the other injectable facilities to add
lyophilization capability, incremental filling lines and automation. 

Q: When will the Akorn India facilities be US FDA approved?

A: As a first step, we have implemented Akorn`s global quality policies at the
Akorn India site. We are now in the process of implementing our plan to transfer
existing or file new products to trigger US FDA facility inspections by late
2013 or early 2014. The proposed oncology facility and expanded injectable
facility should be completed by late 2014, and we expect the US FDA to inspect
these facilities by late 2015 or early 2016. 

About Akorn, Inc.

Akorn, Inc. is a niche pharmaceutical company engaged in the development,
manufacture and marketing of multisource and branded pharmaceuticals. Akorn has
manufacturing facilities located in Decatur, Illinois, Somerset, New Jersey and
Paonta Sahib, India where the Company manufactures ophthalmic and injectable
pharmaceuticals. Additional information is available on the Company`s website at
www.akorn.com. 

Forward Looking Statements

This press release includes statements that may constitute "forward-looking
statements", including projections of certain measures of Akorn's results of
operations, projections of sales, projections of certain charges and expenses,
projections related to the number and potential market size of ANDAs and other
statements regarding Akorn's goals, regulatory approvals and strategy. Akorn
cautions that these forward-looking statements are subject to risks and
uncertainties that may cause actual results to differ materially from those
indicated in the forward-looking statements. These statements are made pursuant
to the safe harbor provisions of the Private Securities Litigation Reform Act of
1995. Because such statements inherently involve risks and uncertainties, actual
future results may differ materially from those expressed or implied by such
forward-looking statements. You can identify these statements by the fact that
they do not relate strictly to historical or current facts. They use words such
as "anticipate," "estimate," "expect," "project," "intend," "plan," "believe,"
and other words and terms of similar meaning in connection with a discussion of
future operating or financial performance. Factors that could cause or
contribute to such differences include, but are not limited to: statements
relating to future steps we may take, prospective products, future performance
or results of current and anticipated products, sales efforts, expenses, the
outcome of contingencies such as legal proceedings, and financial results. These
cautionary statements should be considered in connection with any subsequent
written or oral forward-looking statements that may be made by the company or by
persons acting on its behalf and in conjunction with its periodic SEC filings.
You are advised, however, to consult any further disclosures we make on related
subjects in our reports filed with the SEC. In particular, you should read the
discussion in the section entitled "Cautionary Statement Regarding
Forward-Looking Statements" in our most recent Annual Report on Form 10-K, as it
may be updated in subsequent reports filed with the SEC. That discussion covers
certain risks, uncertainties and possibly inaccurate assumptions that could
cause our actual results to differ materially from expected and historical
results. Other factors besides those listed there could also adversely affect
our results. 

Non-GAAP Financial Measures

In addition to reporting all financial information required in accordance with
generally accepted accounting principles (GAAP), Akorn is also reporting
Adjusted EBITDA, Adjusted net income and Adjusted net income per diluted share,
which are non-GAAP financial measures. Since Adjusted EBITDA, Adjusted net
income and Adjusted net income per diluted share are not GAAP financial
measures, they should not be used in isolation or as a substitute for
consolidated statements of operations and cash flow data prepared in accordance
with GAAP. In addition, Akorn`s definitions of Adjusted EBITDA, Adjusted net
income and Adjusted net income per diluted share may not be comparable to
similarly titled non-GAAP financial measures reported by other companies. For a
full reconciliation of Adjusted EBITDA and Adjusted net income to GAAP net
income, please see the attachments to this press release. 

Adjusted EBITDA, as defined by the Company, is calculated as follows: 

Net income, plus:

* Interest income (expense), net 
* Provision for income taxes 
* Depreciation and amortization 
* Non-cash expenses, such as share-based compensation expense, changes in the
fair value of warrants, and deferred financing cost amortization 
* Other adjustments, which historically have included equity in earnings of
unconsolidated joint venture related to the sale of the joint venture's assets,
amortization of the fair value adjustment to inventory acquired through business
acquisitions, and Kilitch Drugs (India) Limited acquisition-related expenses.

The Company believes that Adjusted EBITDA is a meaningful indicator, to both
Company management and investors, of the past and expected ongoing operating
performance of the Company. EBITDA is a commonly used and widely accepted
measure of financial performance. Adjusted EBITDA is deemed by the Company to be
a useful performance indicator because it includes an add back of non-cash and
non-recurring operating expenses which have little to no bearing on cash flows
and may be subject to uncontrollable factors not reflective of the Company`s
true operational performance (i.e. fair value adjustments to the carrying value
of stock warrants liability). 

Adjusted net income, as defined by the Company, is calculated as follows: 

Net income, plus:

* Intangible asset amortization, net of tax 
* Non-cash expenses, such as non-cash interest, share-based compensation
expense, changes in the fair value of warrants, and deferred financing cost
amortization, all net of tax 
* Other adjustments, such as equity in earnings of unconsolidated joint venture
related to the sale of the joint venture's assets, amortization of the fair
value adjustment to inventory acquired through business acquisitions, and
Kilitch Drugs (India) Limited acquisition related expense, all net of tax

Adjusted net income per diluted share is equal to Adjusted net income divided by
the actual or anticipated diluted share count for the applicable period. 

The Company believes that Adjusted net income and Adjusted net income per
diluted shares are meaningful financial indicators, to both Company management
and investors, in that they exclude non-cash income and expense items that have
no impact on current or future cash flows, as well as other income and expense
items that are not expected to recur and therefore are not reflective of
continuing operating performance. Adjusted net income and Adjusted net income
per diluted share provide the Company and investors with income figures that
would be expected to be more aligned with cash flows than GAAP net income, which
includes a host of non-cash income and expense items. 

While the Company uses Adjusted EBITDA, Adjusted net income and Adjusted net
income per diluted share in managing and analyzing its business and financial
condition and believes these non-GAAP financial measures to be useful to
investors in evaluating the Company`s performance, each of these financial
measures has certain shortcomings. Core business revenue does not provide a full
picture of the Company`s historical revenues. Adjusted EBITDA does not take into
account the impact of capital expenditures on either the liquidity or the GAAP
financial performance of the Company and likewise omits share-based compensation
expenses, which may vary over time and may represent a material portion of
overall compensation expense. Adjusted net income does not take into account
non-cash expenses that reflect the amortization of past expenditures, or include
stock-based compensation, which is an important and material element of the
Company`s compensation package for its directors, officers and other key
employees. Due to the inherent limitations of each of these non-GAAP financial
measures, the Company`s management utilizes comparable GAAP financial measures
to evaluate the business in conjunction with Adjusted EBITDA, Adjusted net
income and Adjusted net income per diluted share and encourages investors to do
likewise.

                                                                                                           
 AKORN, INC.                                                                                               
 2013 FINANCIAL GUIDANCE                                                                                   
                                                                                                           
 RECONCILIATION OF GAAP NET INCOME TO NON-GAAP ADJUSTED NET INCOME:                                        
                                                                                                           
                                                                                                           
           GAAP NET INCOME                                                     $53 - 57           million  
                                                                                                           
           ADD:                                                                                            
                                  Intangible asset amortization expense        7                  million  
                                  Share-based compensation expense             7                  million  
                                  Non-cash interest expense                    5                  million  
                                  Amortization of deferred financing costs     1                  million  
                                                                                                           
           SUBTRACT:                                                                                       
                                  Tax effect of adjustments                    (8            )    million  
                                                                                                           
           ADJUSTED NET INCOME                                                 $65 - 69           million  
                                                                                                           
           ADJUSTED NET INCOME PER DILUTED SHARE                               $0.57 - 0.61                
                                                                                                           
           SHARES USED IN COMPUTING ADJUSTED NET                                                           
                                  INCOME PER DILUTED SHARE                     114                million  
                                                                                                           
                                                                                                           
 RECONCILIATION OF GAAP NET INCOME TO NON-GAAP ADJUSTED EBITDA:                                            
                                                                                                           
           GAAP NET INCOME                                                     $53 - 57           million  
                                                                                                           
           ADJUSTMENTS TO ARRIVE AT EBITDA:                                                                
                                  Depreciation and amortization expense        13                 million  
                                  Interest expense, net (cash and non-cash)    9                  million  
                                  Income tax provision                         $31 - 34           million  
           EBITDA                                                              $106 - 113         million  
                                                                                                           
           ADJUSTMENTS TO ARRIVE AT ADJUSTED EBITDA:                                                       
                                  Share-based compensation expense             7                  million  
                                  Amortization of deferred financing costs     1                  million  
           ADJUSTED EBITDA                                                     $114 - 121         million  


Akorn, Inc.
Tim Dick, Chief Financial Officer
(847) 279-6150 



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